Abstract

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Federalization Snowballs: The Need for National Action in Medical Malpractice Reform

Because tort law generally and healthcare regulation specifically are traditional state functions and because medical, legal, and insurance practices are highly localized, legal scholars have long believed that medical malpractice falls within the states' exclusive jurisdiction and sovereignty. Indeed, this view is so widely held that modern legal scholarship takes it for granted. Articles on general federalism issues use medical malpractice as an easy example of a policy in which federal intervention lacks functional justification, and articles that focus on federalization of other tort reforms use medical malpractice as an easy foil, pointing out that the uniformity interest that justifies federalized products liability law, for example, does not apply to medical malpractice law.

But this conventional view fails to take account of the impact that existing federal healthcare programs have on the states' incentives to regulate. The federal government finances a significant portion of American healthcare, both directly through spending programs like Medicare and Medicaid and indirectly through tax subsidies like the exemption for employer-sponsored insurance. As a result of these federal expenditures, each state externalizes some of the costs of its malpractice policy choices onto the federal government, even while internalizing the benefits of those choices. The federal government thus needs to play at least some role in medical malpractice reform in order to fix the spillover problem created by existing federal healthcare programs.

Importantly, the need for federal intervention in medical malpractice arises solely from the federal government's prior decisions to pay a portion of healthcare spending. Unlike traditional spillover stories, the story here is not that the states are inevitably ill-suited to govern medical malpractice; rather, the federal government has made them so. That is, the federal government's prior interventions in healthcare spending have snowballed into a need for federalization of medical malpractice. This causal distinction between spillover stories and "snowball" stories bears theoretical and practical significance for functional models of federalism, and it has the potential to explain and justify federalization decisions in a wide range of regulatory regimes.